Legalized marijuana offers new sin tax for schools

Legalized marijuana offers new sin tax for schools

(Colo.) In a development that might have seemed unthinkable only a few years ago, cash-strapped school officials nationwide can rightly anticipate the next big windfall in state and local tax revenue – legalized marijuana.

The illicit drug trade generates an estimated $30 billion in sales annually. With medical marijuana already legal in 20 states and recreational use approved last year by voters in Colorado and Washington, some pundits believe the day is coming when school officials will have to come to terms with this new sin tax.

“One approach is for schools to jump in and say, ‘Yes, let’s tax it and get the revenues,” explained Pat Oglesby, an attorney and former Congressional tax staffer, who has written extensively on the issue of marijuana and taxation.

“Another approach is to say, ‘Let’s tax it and deter or discourage use,’” he said. “What that means is that you would be establishing a drug policy aimed at making the after-tax high enough to keep it from being ridiculously available,” he said.  “Either way, taxes are attractive.”

With the combined sales of both medical and recreational marijuana in Colorado expected to approach $1 billion in the next fiscal year, the impact is no longer an idle concept. Colorado Gov. John Hickenlooper has estimated that next year the state will collect upwards of $134 million from combined weed sales.

Figures released last month showed that Colorado’s licensed recreational dispensaries generated more than $14 million in sales the first full month.

In approving the ballot measure legalizing recreational use, voters also directed the state to collect a 10 percent sales tax as well as a 15 percent excise tax.

The first $40 million in tax revenue is earmarked for school facilities and classroom construction. The governor wants to use some of the additional funds to support a media campaign highlighting the risks associated with drug use.

In Washington, where recreational sales will not begin until later this spring or early summer, voters approved an even higher tax burden. The state is imposing a licensing fee on growers and distributors, as well as a 25 percent excise tax imposed at each stage of the process. There is also a sales tax on each purchase as well as a business-occupation tax.

Most of the tax money raised from recreational marijuana in Washington will be split between health care and education programs, although state officials have not yet issued any revenue estimates because of the uncertainty of the market.

Still, others have taken notice.

Lawmakers in 17 states have introduced legislation this year to make recreational use of marijuana legal, according to a report in the New York Times this week. That said, many of the governors in the targeted states are not publicly embracing the concept.

Meanwhile, a national survey by Pew Research measured support among American adults at an all-time high – 54 percent – for legalizing marijuana. The poll, released earlier this month, also found that 76 percent said offenders with small amounts should not be subjected to jail time.

The shift in attitude is not without precedent – indeed, debate over the social and health care implications of alcohol and tobacco have been major themes in American history with the tax emerging more recently as a disincentive to smokers.

The education community has also had its own experience with sin taxes with the adoption of state lotteries in much of the nation that provide a big portion of their sales profits to benefit schools.

Oglesby, who is also founder of the Center for New Revenue, a nonprofit based in Chapel Hill that includes marijuana and taxes as a key area of interest, suggests public policy officials consider a variety of economic do’s and don’ts.

For one, he says, states should impose the targeted vice tax at the beginning of the process – just as alcohol and tobacco is taxed. The main reason, he says, is to prevent tax losses due to shoplifting or hijacking.

He also argues that Colorado and Washington are applying much of their tax on the price of the marijuana being sold instead of the weight. He warned that some entrepreneurs are already offering deals that bundle one service – say an expensive hotel room with “free” marijuana.

Finally, Oglesby raises concerns about tax policy being written into a state constitution by voter initiative. He warns that marijuana, as a commodity, will have price fluctuations that may require adjustment of tax rates.

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